Hong Kong-Australia: Virgin Australia enters with HNA alliance, but traffic rights unlikely to grow

Virgin Australia's entry into Hong Kong marks a significant expansion for its strategy and partnership with China's HNA Group. The growth also raises the matter of the Hong Kong-Australia air service agreement.

Hong Kong has exhausted its traffic rights to primary Australian cities and has sought more. Australia, however, has used only half of its allotment, not needing to expand the agreement and receive more traffic rights. Australia has sought other growth mechanisms to transform Hong Kong into a hub for Australian operators in the way that Singapore and Dubai have done.

Hong Kong has protected its geographical opportunity and not given Australia other rights. A stalemate has ensued. Virgin Australia's entry, however, means that Australia will use its traffic right allotment faster, accelerating the window for an air service agreement expansion.

Australia argues that, following its liberalised agreement with mainland China, Hong Kong - under a separate aviation framework - should logically follow suit. Despite the seeming similarities, they are two different markets. Ignored from both sides is what the broader market - and not a specific hub - would gain through liberalisation.